Goldman Sachs sucked into 'dark pools' trading scandal after being hit with an $800,000 fine by US regulators

Goldman Sachs has been sucked into the ‘dark pools’ trading scandal after being hit with an $800,000 (£466,000) fine by US regulators.

Watchdog the Financial Industry Regulatory Authority (FINRA) said the US behemoth failed to have adequate safeguards to protect clients, with 395,000 left out of pocket in just eight days in the summer of 2011.

Goldman has paid $1.67m to compensate those who lost out.

Fine: The Financial Industry
Regulatory Authority said the US behemoth failed to have adequate safeguards to protect clients

The fine shows how US authorities are turning the spotlight on so-called ‘dark pools’ – secretive markets where people buy and sell stocks without disclosing information about the transactions.

Although pocket change for any major bank, it will provide pause for thought for Barclays which is suspected of far more serious offences.

Last week the UK giant was accused of ‘systematic fraud and deceit’ against its customers by New York Attorney General Eric Schneiderman, who launched a lawsuit against the bank.

According to FINRA Goldman did not deliberately short-change customers but had sloppy controls in its dark pools trading system, called SIGMA-X.

This caused it to violate strict rules in the US which require brokers to execute trades at the best possible prices, regardless of what exchange it is on.

The diktat – called the ‘trade through rule’ – stipulates that if there is a better price somewhere else, the trade had to be routed there. But lax controls meant that between July 29, 2011 and August 9, 2011, more than 395,000 trades were made through SIGMA-X where the investor did not get the best price. FINRA said Goldman was unaware of this and also failed to detect it in a ‘timely manner’.

It also said that Goldman exposed customers to risk by failing to establish adequate systems between November 2008 and August 2011

Thomas Gira, FINRA’s executive vice president of market regulation, said it was ‘imperative’ to ensure traders are ‘appropriately protected and customers do not receive executions at inferior prices.’

He added that FINRA ‘has no tolerance for firms that fail to have robust policies and procedures to protect against trading through protected quotations’.

Barclays is unlikely to get off so lightly if found guilty of far more serious allegations.

It faces multi-million pound fines if found guilty of duping investors who traded shares in its dark pool.

The lawsuit from the New York Attorney General alleged that Barclays told customers they would be protected from ‘high frequency traders’ who use super fast computers to perform trades and steal a march on ordinary investors.

Instead, it is alleged that Barclays invited such traders into the dark pool. The bank was also accused of herding investors into its own dark pool rather than to those owned by rivals where they might have got a better deal.

Scheniderman said Barclays’ dark pool was ‘full of predators – there at Barclays’ invitation.’

Despite the difference between the two cases one analyst compared the slap on the wrist for Goldman as evidence of ‘discrimination’ by US regulators against UK firms.

Ian Gordon, an analyst from Investec said: ‘The nominal $800,000 penalty imposed on Goldmans by FINRA for its alleged failings appears grossly at odds with both the tone and scale of various US regulatory actions against UK and European institutions for a wide range of alleged breaches.’ He added: ‘Discriminatory US action against UK institutions demands a robust political response – something which has been sadly lacking to date. UK banks can have absolutely no confidence in the current UK Government to protect their legitimate interests.’